+598 The item in question at a unit selling price of $100. Red River’s forecast volume of sales for the first year is 8000 units. The annual fixed cost for adding this product to the inventory is estimated to be $200,000. Also variable cost per unit is $60.
1. If the last 500 units are moving too slowly and if Mr. Lee decides to reduce the selling price to $75, is he covering his total cost per unit at this price?
Any help would be greatly appreciated with steps
Thanks
What is your understanding of the "variable cost per unit" to be. Is it $60? If so, what about the "fixed cost" of $200,000? Shouldn't you take that into account when figuring the "variable cost per unit"?. If he purchased 8,000 units @ $60 per unit, which comes to $480,000, should you add the "fixed cost" of $200,000 to the $480,000 for a total cost of $680,000?.If you allowed for that, the cost per unit isn't really $60, but $680,000/8,000=$85.00!. If you agree with this, then answering your question is obvious. Now, you decide.
